What Are the Semis Telling Us?

It was not exactly the rally I thought we'd get as it didn't even come close to 1%. It was actually quite pathetic in terms of S&P points.

But breadth was really quite good so it keeps the McClellan Summation Index rising on the NYSE for now. Curiously enough, over on Nasdaq, where it's the world's fair, the McClellan Summation Index using volume continues to stall out.

As long as we are on the topic of Nasdaq, let's note the SOX, where it has gone sideways for two weeks now and did not participate yesterday. Long time readers will recall, the same way I consider the banks a leading group for the S&P, I consider the semis a leading group for Nasdaq. So, their stalling out of late has caught my eye.

On the chart below we would have no issues as a pure chart. It measures to 510 and as long as it stays over 490, it's not done anything wrong. Line A gives us the measured target and line B shows us support.

The issue comes along when we look at the SOX compared to Nasdaq. The first thing we should notice is that it stalled out in mid-September. Oddly enough it stalled out the last time the equity put/call ratio slipped into the 40s as it did on Thursday (yes, folks are clearly betting with calls in a major way). If you think I fuss too much, I ask you to glance at the left side of the chart and recall the May/June decline. Please note what this ratio was doing during that time (A on the chart): rising. And what was the better index coming out of that June low? The Nasdaq.

Now notice how as the market crested to that high in early August where this ratio was: in decline (B on the chart). Everything bottomed all together in late August, but now we have a stalling out and the potential to roll right over.

I'd like to share two more charts with you. First is the chart of Jabil Circuits (JBL). They are a distributor of technological components, nothing fancy. They reported earnings on Thursday that the Street clearly did not like and they sold the stock down 10%.

Just below that chart I have the ratio of Nasdaq relative to the S&P. I think you will see the two are shaped almost exactly the same when you compare the charts together. As JBL faltered in the first quarter, Nasdaq's performance relative to the S&P drifted downward. As JBL bottomed in April, the S&P took a back seat to Nasdaq.

I realize I have spent a great deal of time picking on Nasdaq, of late but if I had all of these indicators inversed and bottoming I would be happy to share them with you. Instead, it's an awful lot of divergences. Maybe this time will be different, but we all know when we say that we're sorry more often than not.

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